- Understanding the Wealth of Nations
- The Factors of Production
- Physical capital: the stock of tools, structures, and equipment.
- Human capital: is the productive knowledge and skills that workers acquire through education, training and experience.
- Technological knowledge: knowledge about how the world works that is used to produce goods and services.
The amount of available resources only tells part of the story. - The amount of available resources only tells part of the story.
- Why do some countries have more physical and human capital and use more advanced technology?
- Why do some countries obtain greater output from the resources they have than others?
- The answers lie in the institutions and incentives that countries adopt.
Check Yourself - Which country has more physical capital per worker: the United States or China? China or Nigeria?
- What are the three primary factors of production?
- Incentives and Institutions
- A natural experiment: North and South Korea
- Same people and culture.
- Similar levels of physical capital and access to the same technology.
- North Korea became a communist state with a centrally planned economy.
- South Korea adopted the capitalist free market model.
- The result 50 years later
- North and South Korea at Night
Institutions - the “rules of the game” that structure economic incentives. - Incentives and Institutions
- Institutions - the “rules of the game” that structure economic incentives.
- Institutions of Economic Growth
- We will now look at each of these in turn.
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